I was recently confronted with an interesting question: an old acquaintance of mine paid for an exclusive license to market and sell a certain technology that was patented.

There was one “small” problem, however: the technology didn’t work.

So, you would think that my acquaintance should have no problem recovering his downpayment for the exclusive license fee under New York law as a breach of implied warranty, right? Well, not so fast.

Under Uniform Commercial Code section 2-316, there are circumstances where a vendor can validly disclaim either a warranty that the goods are fit for a particular purpose, or are even fit at all. One of the most common examples of this is where the buyer purchases the goods “as is.”

The moral of the story is obvious: you should not sign such an agreement unless, and at a bare minimum (and I don’t recommend this), you have first assured that the product actually works.

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Not terribly much, according to a recent decision from a Queens County trial court.

In Phone Card America, Inc. v. Quality Discount Equipment Sellers, LLC, the defendant sold plaintiff a specialized printing press for the express purpose of printing phone cards. Unfortunately, despite plaintiff’s numerous efforts to have the press’s problems  both diagnosed and repaired, they were informed by an expert technician that had been recommended by the defendant that it still required a transformer to make the machine functional. Although the defendant allegedly promised plaintiff that they would provide the transformer, they never did so.

In response to plaintiff’s lawsuit seeking, among other things, to rescind the contract, the defendant moved to dismiss the complaint on the grounds that since the contract was for goods exceeding $500 in value and had never been reduced to writing, plaintiff’s argument should be barred by New York’s Statute of Frauds.

In rejecting the defendant’s argument, however, the Queens County trial court held, however, as follows:

“In the case at bar, the plaintiff produced an e-mail from the defendant which amounts to a “writing” sufficient to satisfy UCC 2-201. (See, Bazak Intl. Corp. v. Tarrant Apparel Group, 378 F Supp 2d 377 [applying New York law].) Although the e-mail is not detailed, the Official Comment to UCC 2-201 states: “1. The required writing need not contain all the material terms of the contract and such material terms as are stated need not be precisely stated. All that is required is that the writing afford a basis for believing that the offered oral evidence rests on a real transaction.”

The moral of the story is both clear and twofold: (1) don’t automatically assume that your potential breach of contract action is D.O.A. just because you didn’t have a full-blown and detailed contract; and, (2) in any transaction or course of dealing, ALWAYS make sure you get SOMETHING about the nature of your agreement memorialized in writing; all you need is enough to  establish that an agreement between the parties existed.

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By way of background, implied warranties are primarily applied in two contexts in New York: (1) in the breach of contract for goods context;  and, (2) where a product was not safe for its intended use, i.e.,  in the defective consumer products context (for more on the latter category, please see “How to Prove a Breach of Implied Warranty Claim Under New York Law“).

But in the breach of contract context as between a purchaser and seller of goods, UCC 2-315, entitled “Implied Warranty: Fitness for Particular Purpose,” is the guiding statute. It provides, in pertinent part, as follows:

“Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller’s skill or judgment to select or furnish suitable goods, there is unless excluded or modified under the next section an implied warranty that the goods shall be fit for such purpose.”

That being said, the very next statute, UCC 2-316, provides an exception that can swallow the rule that would allow for a breach of contract action based on breach of warranty, however. This provision, entitled “Exclusion or Modification of Warranties,” provides several methods by which implied warranties may be excluded from a sales contract, including by, for example, a “conspicuous” written disclaimer. (See, Brennan v. Shapiro, 12 AD3d 547.)

Therefore, in order to assess the viability of a breach of implied warranty claim, it is critical that you review the language of the contract; more often than not, it will contain a written disclaimer that will sound the death knell for a breach of warranty action.

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